Depleting Physical Silver From Exchanges May Lead to Silver Squeeze

Things are getting interesting in the silver market as there is a possible Silver squeeze happening. Ronan Manly of revealed that more than 50% of deliverable silver on COMEX is suddenly ‘not available.’ Manly referenced a tweet by metals expert, Nicky Shields, who said that they are mildly bearish Gold for the year ahead ($1830 by 2023s conference) but super bullish Silver ($28.30) as the focus was on physical tightness driven by unprecedented demand.

This indicates that the number of bars that were previously thought to be redeemable was simply cut in half.

To simplify things a little, eligible silver is any silver that complies with the requirements for satisfactory delivery. The eligible silver would be of sufficient grade and fulfill the required standards of standardization to be formally released through the COMEX and complete the contract if someone chose to remove physical silver from the market.

However, there is no such warrant issued with acceptable silver. This implies that when a contract holder wants to collect, the long-holders of physical silver are under no responsibility to return the silver to the exchange. The long-holders likely believe that physical value would keep on appreciating, and at a time of shortages, it seems unlikely that these resources would be sold off without a hefty price rise.

Surveys performed revealed no clear agreement over how much silver is devoted to long-term investments, further obscuring the situation. The exchange has so admitted that it is unsure of the amount of physical silver that will be made available for release, should market participants choose for physical redemptions.

This is due to the fact that there are already many contracts and that a significant portion of the metal that is considered deliverable will never be registered. Registered products are those which are readily available to investors who want bullion delivery. These are essentially equivalent to qualified silver but come with warrants for physical withdrawal.

Possible Silver Squeeze Lurks 

Additionally, the silver spot market is still in backwardation, which means that the spot price of silver is higher than the futures price, indicating a very strong current demand for physical metal. And as the figure below demonstrates, the price of physical coins has been rising while futures prices have been flat over the past four months.

Due to the increased demand, the physical silver percentage premium over spot is now at nearly unheard-of levels, as shown in the figure below.

This has resulted in dealers offering giant premiums over spot to buy silver. APMEX, for example, is offering $10 over spot per coin right now, while SD Bullion is offering $10.50 and $11 over bid.